For a long time it seemed as if the Indian online business universe was living by the Woody Allen principle. “If my films don’t show a profit, I know I’m doing something right,” the filmmaker, actor and musician had famously quipped.

For a filmmaker, though, as long as the hits keep coming — even sporadically — the flops are pardonable. For digital startups and e-commerce ventures, it is a bit different. When funding is easy and ample, the flops (losses) — no matter how many — don’t raise eyebrows. When funding dries up, though, it’s time to score at the box office and make profits.

For most e-commerce ventures — let’s not call them startups anymore — it’s the latter scenario that’s playing out: the funding scenario is tough, and the only way to stay viable is to hunker down, go easy on discounts and offers, and break even operations.

The exceptions, of course, are the big boys of e-commerce, who are still attracting huge funding from moneybags like SoftBank and Alibaba. For them, profits can wait, discount offers and big sale days can’t.

When ET Magazine met Deepinder Goyal, founder of online restaurant discovery and food ordering platform, in July, he dropped enough hints that breakeven was around the corner. Before that, Info Edge, a listed firm and Zomato’s largest investor with a 46% stake, had told investors something similar in a concall in May: high growth continues, burn is low, they (Zomato) have enough cash to last it out and they could break even whenever they want, founder of Info Edge Sanjeev Bikhchandani had said.

Three months down the line, the company has clawed its way out of the red. “Zomato is now a profitable company,” claimed Goyal in his blog early this week. The profit, though, was at the operational level, and there are still losses piled up.

The turnaround towards black, however, has been steady over the past couple of years. The decade-old-company cut operating losses from Rs 425 crore in fiscal year 2016 to Rs 101 crore a year later. This was enabled by slashing annual operating burn from Rs 411 crore to Rs 77 crore in fiscal year 2017.

“We have survived,” Goyal told ET Magazine in July. Stemming the losses may have been the only way to survive for a company that last raised funds two years ago. And it may be a similar story for other online ventures for whom the next round of funding looks elusive for now. Consider: over the past two years, the total amount raised in Series A funding — the first significant round of venture capital funding — has fallen by over 70%: from $989 million in 2015 to $257 million this year. Series B too has seen a big dip: to $693 million from $1.14 billion two years back, according to data shared by Tracxn.

Profit MantraClearly, when prayers for funding fall on deaf ears, profit mantra is the only path to salvation. Take, for instance, Quikr. The online classifieds unicorn, which last raised funding in August 2016, has embarked on the path to profit; one of its five verticals, QuikrJobs, entered the black in March, says the company.

InMobi, one of the earliest unicorns from India, also claims to be positive at the level of EBITDA (earnings before interest, tax, depreciation and amortisation) since last year.

“There are always ups and downs but profitability was always around the corner,” says Naveen Tewari, founder and chief executive officer of InMobi, declining to share revenue or profit numbers. It took the company 10 years to post its first profit.

Girish Shivani, executive director of YourNest venture fund, calls it a survival strategy. As capital dried up in end-2015 and pretty much all of the following year, he explains, breakeven became a harsh reality.

Even as volumes went up due to sharper focus on low-margin categories, heavy promotions and cashbacks went out of the window.

Ultimately, for any corporate structure, margins and profitability are when the rubber truly hits the road, and most of the large players have now recognised it.

The sounding of the death knell for a few big players who were profligate with their capital, reckons Shivani, only pushed many companies to hit the road to profitability. “Anything that does not kill you makes you stronger,” he adds.

Sandeep Murthy, partner at venture capital firm Lightbox, is not surprised to see gross merchandise value (GMV) being replaced by profit as the new mantra. Three years ago, he says, on the back of Alibaba’s blockbuster IPO and Narendra Modi’s ascent to power, investors believed India was a land grab and that the one who gets the biggest piece would win the game.

That story played out for a while with larger cheques going to those that showcased that they were grabbing the most land (read GMV). However, as investors began to understand that the land grab was useless, they started to pull back and question their original assumptions. Entrepreneurs who had built their strategies by playing to this gallery realised that they too needed to change their tune and so the profit mantra emerged, says Murthy.

Sanjay Sethi, too, was guilty of playing to the gallery, though for a short time. “Profit was an alien word, and GMV was the talk of the town in 2015,” recalls Sethi, cofounder of ShopClues. There was an irrational exuberance towards the end of 2014, which gathered momentum over the next year. The Gurgaon-based company, which reportedly posted revenue of Rs 179 crore in fiscal 2016 and logged a loss of Rs 383 crore, expects to be operationally profitable by next June. For the online marketplace that entered the unicorn club in January last year, and raised $200 million so far, the going has been far from easy.

The temptation was to enter many categories, including large appliances and branded electronics, a la etailing giant Amazon. Shop-Clues has since rationalised its presence. Bigticket consumer durables like refrigerators and washing machines don’t find a place in the warehouse, and it has moved from air to ground shipping. Another tactical mistake was entertaining the thought of buying a mobile wallet player, as most of the ecommerce players had one to flaunt. Fortunately, the plan was shelved.

Meanwhile, realisation also quickly dawned that due to a tough funding environment, the only way to survive the onslaught of giants like Flipkart and Amazon was to turn profitable. “It was very clear to us that if we are profitable, we would be valuable,” says Sethi, who plans to take ShopClues public next year.

To be sure, when dressing up for an IPO, profits — fat ones — are an imperative, at least in India. For instance, the EBITDA of Matrimony. com, whose public issue opened last fortnight, grew over eight times from Rs 7.2 crore in fiscal year 20216 to almost Rs 60 crore a year later. The projection for the current year: Rs 90 crore. Investors, though, may not be impressed; the stock listed flat at the issue price of Rs 985 earlier this week.

“Investors put large sums of money in startups having high potential in high growth markets, hoping to make a killing. This killing can happen in one of two ways — successfully sell the stakes to another investor at a higher valuation or through an IPO,” explains K Vaitheeswaran, cofounder of Fabmart.com, touted as India’s first ecommerce startup.

Unfortunately in India, adds Vaitheeswaran, IPO rules are quite stiff and the regulatory authorities insist on profitability prior to IPO approval. That explains why just a handful of tech ventures — Just Dial, Naukri and Matrimony — have IPOed in the past two decades in India.

Shubhankar Bhattacharya, venture partner at Kae Capital, explains that showcasing profitability could also make for a more compelling story for prospective investors.

But he warns that being bottom line-focused isn’t without hazards — particularly in markets that have a winner-take-all dynamic about them, where it can be rather challenging to retreat to a smaller scale to focus on profits. Larger, betterfunded market leaders can browbeat smaller players out of the market, rendering their efforts to focus on profitable existence moot, says Bhattacharya. For companies that are focused on profitability, he advises, perhaps the best route is to pick a small niche that has relatively less competition, so that they can focus on executing on their differentiation and value proposition.

Growth or Profit?This is what Manish Taneja claims to have been doing since 2012. The cofounder of Purplle, an online beauty products and services marketplace, has raised $6 million in two rounds since January 2015; the last undisclosed round was in February this year. The plan now is to turn operationally profitable by year-end.

“Profit is one of the crucial metrics,” says Taneja, who began nudging his company towards profitability by moving to a marketplace model in January last year. Its GMV has grown 15 times over the last three years, cash burn has never crossed the monthly mark of Rs 1.5 crore and Purplle in fiscal year 2017 posted a loss of Rs 10 crore, he claims. “We never burnt heavy cash.”

Though Taneja may have opted for sustainable growth in the trade-off between scale and bottom line, others see value in growing rapidly, even at the cost of losses.

Mere profitability, reckons Rajesh Magow, cofounder of India’s largest online travel aggregator MakeMyTrip, doesn’t always tell the complete, accurate story. In an under-penetrated and fast-growing online market, the investment phase could be longer. Profits can become priority once the market matures and reaches a certain scale.

MakeMyTrip, claims Magow, had seen profitable cycle in the past before it started investing in the growing online hotel market. The company, which made its Nasdaq debut in 2010, was in profit for three years after listing. It’s a slightly different situation now. For the June 2017 ended quarter, the Gurgaon-based firm’s marketing and sales promotion expenses rose to $142.3 million, higher than its net revenues of $141.2 million, according to a report by Nomura Research analysts. The company posted a loss of $68.5 million, almost five times the loss of $14.3 million in the same quarter in 2016.

Such numbers don’t deter Magow, who prefers to see a bigger picture. Online hotel market penetration, he says, is still in low-double digits and likely to grow to about 30% by 2020. “We see this as a massive and highly valuable opportunity,” he says, adding that the company will continue to stay growth focused with profitability in the line of sight in the mid to long term.

Meena Ganesh, cofounder of Portea, too says profits should be seen in the larger context. It is important, she says, not to focus on profitability per se but on profitability at what level of scale. At one extreme, return on capital can be positive and good at around 8%, if you just put money in fixed deposits and safe debt instruments, it will always be profitable. Similarly, in a service business that is bootstrapped, you will always be profitable from Day 1 but there is little growth or scale, or impact. Profitability, she explains, can also get affected by the strategic decision on how much you want to spend on brand-building, which is in the nature of capital expenditure and gets expensed out every year.

Even as fund-strapped entrepreneurs strive to churn profits, it won’t be an easy task to strike the right kind of balance between top line and bottom line. “These are cycles and eventually irrationality will come back,” predicts Murthy of Lightbox, “and we will see GMV becoming the focus again.